BILL ANALYSIS AB 957 Page 1 CONCURRENCE IN SENATE AMENDMENTS AB 957 (Galgiani) As Amended August 17, 2009 2/3 vote. Urgency ----------------------------------------------------------------- |ASSEMBLY: |77-0 |(May 26, 2009) |SENATE: |30-4 |(September 1, | | | | | | |2009) | ----------------------------------------------------------------- Original Committee Reference: B. & F. SUMMARY : Enacts the Buyer's Choice Act, to prohibit a seller of residential real property improved by four of fewer dwelling units from directly or indirectly requiring a specific title insurer or escrow agent as a condition to selling the property. Specifically, this bill : 1)Specifies that a buyer is not prohibited from agreeing to accept the services of a title insurer or escrow agent recommended by the seller, provided that written notice of the right to make an independent selection is first provided by the seller to the buyer. 2)Provides a violation by a seller, as defined, shall be liable to the buyer in an amount equal to three times all charges made for the title insurance or escrow service. In addition, any person in violation shall be deemed to have violated his or her license law and shall be subject to discipline by his or her licensing entity. 3)Specifies a transaction shall not be invalidated solely because of the failure of any person to comply with any provision of this act. 4)Defines "escrow service" as a service provided by a person licensed pursuant to Division 6 of the Financial Code, or exempt from licensing pursuant to Financial Code Section 17006. 5)Defines "seller" for purposes of this bill to mean a mortgagee or beneficiary under deed of trust who acquired title to residential real property improved by four or fewer dwelling units at a foreclosure sale, including a trustee, agency, officer, or other employee of any such mortgagee or AB 957 Page 2 beneficiary. 6)Defines "title insurance" as insurance offered by an insurer admitted in this state to transact title insurance pursuant to Chapter 1 of Part 6 of the Insurance Code. 7)Enacts a sunset date of January 1, 2015. 8)Contains an urgency clause, allowing this bill to take effect immediately upon enactment. 9)Makes findings and declarations regarding the real estate market. The Senate amendments : 1)Provide that a buyer can agree to accept the services of a title or escrow provider recommended by the seller, provided that written notice of the right to make an independent selection is first provided by the seller to the buyer. 2)Add an urgency clause. 3)Add findings and declarations regarding the real estate market. 4)Add the definitions of "escrow service" and "title insurance." 5)Apply only to residential real property improved by four or fewer dwelling units. EXISTING FEDERAL LAW : 1)Authorizes federally-chartered financial institutions to engage in the business of mortgage lending, brokering, and servicing and governs the rules under which such activities may be conducted under a wide variety of laws, including, but not limited to, the Home Ownership and Equity Protection Act (HOEPA), Real Estate Settlement Procedures Act (RESPA), Truth in Lending Act (TILA), Home Mortgage Disclosure Act (HMDA), and regulations that interpret those acts (most notably Regulation C, which interprets the Home Mortgage Disclosure Act and Regulation Z, which interprets the Truth in Lending Act). 2)Enacts Section 9 of RESPA to prohibit a seller from requiring AB 957 Page 3 the home buyer to use a particular title insurance company, either directly or indirectly, as a condition of sale. Buyers may sue a seller who violates this provision for an amount equal to three times all charges made for the title insurance. 3)Authorizes under Section 9 of RESPA that individuals have one year to bring a private law suit to enforce violations. Lawsuits may be brought in any federal district court in the district in which the property is located or where the violation is alleged to have occurred. U.S. Housing and Urban Development, a State Attorney General or State Insurance Commissioner may bring an injunctive action to enforce violations within three years. EXISTING STATE LAW specifies that the Department of Corporations (DOC) has the authority to enforce licensees it finds to have violated any provision of RESPA, as amended (12 U.S.C. Sec. 2601 et seq.), or its regulations. (Financial Code Section, 17425) AS PASSED BY THE ASSEMBLY , this bill was substantially similar to the version passed by the Senate. FISCAL EFFECT : None COMMENTS : The author believes, "Since the last major bout of foreclosures during the downturn of the 1990's, a practice has developed in the foreclosure market that is having significant consequences to many groups, including home buyers. Banks and the Federal Department Housing and Urban Development Department (HUD) are increasingly requiring the use of specific service providers when they are the seller of residential property, regardless of who pays for the service. This practice is illegal under federal laws and regulations. Assembly Bill 957 seeks to strengthen state law to further curtail this practice." In addition, the sponsor, the Escrow Institute of California, further states, "What we are witnessing in the REO marketplace is anti-competitive monopoly where banks direct the flow of the sale of foreclosure properties to pre-selected settlement service providers regardless of service or cost, and if a potential buyer does not agree to use these services providers their purchase offer will not be submitted or if reviewed by the lender will be denied." Although, the intention of the bill may already be prohibited AB 957 Page 4 under federal law, the author and sponsor believe California needs to further enforce that the action of banks pre-determining title and escrow companies for buyers is prohibited especially with the sale of REO properties. KCRA, recently released a story in regards to banks forcing buyers to use their escrow companies. This behavior restricts what should be a healthy competitive environment and backs buyers into a corner by forcing them to accept higher fees. HUD has openly stated in the past, "The effectiveness of RESPA could be enhanced by assuring that creative business structures do not defeat the purposes of Sections 8 and 9 of RESPA, and by providing the Secretary and State regulators with the necessary tools to enforce the statute." AB 957 could help ensure further enforcement. In addition HUD has written several informal opinions explaining that all direct and indirect methods of requiring the buyer to use the seller's selected title agent are illegal. For example, a seller who gave the buyer a choice of using one of three title agencies, and who charged a higher fee if another agency was used, violates Section 9 of RESPA. A clause in a purchase agreement that has the effect of forcing the buyer to obtain and pay for a lender's title policy from a specific title company or title agency is illegal. The seller and the seller's real estate broker are liable to the buyer for three times the cost of the title insurance policy each time that a seller or the seller's real estate broker includes such a clause in the purchase agreement. Analysis Prepared by : Kathleen O'Malley / B. & F. / (916) 319-3081 FN: 0002189